Education and Economic Development

Education and economic developmentThe analysis of education as an economic commodity has a long history. The seminal work of Becker (1962) and Schultz(1962) presented a formal model of education as an investment good that augmented the stock of human capital. Individuals made educational choices in the same way as any other investment decision all of which have the common characteristic that an investment cost paid now produces a flow of benefits through time whose present discounted value is to be compared with the present cost. Following from this, there was an outpouring of econometric studies attempting to measure the rate of return to education – the so called Mincerian approach – whilst controlling for a plethora of other variables that might reasonably be expected to influence earnings. Extensions of this basic Human Capital model to study training outcomes, educational subsidies and fee charges have been recently exploited. Within development and growth economics, the importance of education as an economic variable also has a distinguished history beginning with Lewis(1962). Questions regarding appropriate mix of skills, what type of education to be emphasised, the relationship between education and the capacity of the economy to absorb educated workers in productive employment have all been studied albeit outside the confines of a formal model. Recently, the resurgence of interest in endogenous growth – the so called New Growth Theory ( Barro(1991), Barro and Sala-i-Martin (1995),Lucas (1998) has given a huge impetus to the formal analysis of the potential role of education in economic growth. However it must be emphasised that economic growth and economic development are not the same thing. Economic growth is one component albeit a very important one in the process of economic development. This important distinction is best illustrated by the creation (and widespread use) of the Human Development Index by UNDP. This index has acquired the status of the industry standard when discussing non GDP contributions to economic development. In India, perhaps more than in many developing countries, the non GDP dimension is of huge importance. The sheer scale and diversity means that the development process has had perforce to deal with issues of inequality and exclusion on a multidimensional scale. Most developing countries have had to emphasise reduction of poverty, gender discrimination ,infant mortality, literacy, child labour, income inequality etc as part of their development agenda. In India there are additional factors which impinge on and intersect the development process- caste and “untouchability”, religion, language, to name the most important. I shall structure this brief survey to follow the three main strands outlined above. First I shall examine the returns to education in India , and then examine the role of education on both economic growth and economic development with particular reference to India. Throughout, my objective is draw out the implications of the empirical results for education policy. Rates of Return to Education in India

The recent study by Dutta (2006) using the Indian National survey data found that for adult males the pattern of rates of education is not dissimilar to that found elsewhere. The returns were significantly different for casual workers and regular workers. The latter had the usual inverted U shaped curve with respect to education levels whilst for casual workers the returns were flat. There was also some evidence that for regular workers graduates were pulling away from primary educated in the period of the 1990s. The author suggests (without much evidence) that this might be because of trade liberalisation. Worthwhile though such studies are, it must be borne in mind that the entire Human Capital approach is based on competitive access to credit markets in order to finance education. If education is rationed so that those from low income families are...

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